My firm prepares a quarterly newsletter to all clients to keep them up-to-date on tax matters.
Below is an excerpt from our Update for July 2020.
EMERGENCY UNEMPLOYMENT BENEFITS
During this pandemic, many states have extended and increased unemployment benefits. However, unemployment benefits are still taxable income, so it would be wise to have Federal income tax withheld from those payments.
So far, no extension of the emergency unemployment benefits of $600 per week has been passed. These benefits will end on Friday, July 31 and I urge everyone to be prepared for this and plan accordingly. Please don’t count on an extension of these benefits until they actually happen (if they do).
UPDATE ON ECONOMIC IMPACT PAYMENTS
A common question about the Economic Impact Payments that have been sent to Americans is whether they are taxable or not. The answer is no, they are not taxable. They are being treated as an advance refundable tax credit for 2020. Anyone who hasn’t received their payment (either as a direct deposit to their bank account or a debit card) will have to wait until they file their 2020 Federal tax return to receive it.
Do you have more questions about this? Then go to https://www.irs.gov/coronavirus/economic-impact-payment-information-center#eligibility where almost questions can be answered.
INCOME WHICH DOESN’T HAVE TAX
WITHHELD AND IS TAXABLE
When you open a bank account or a brokerage account, you will be asked for your Social Security number so that the bank or brokerage has an identifying number for reporting your interest and dividends to IRS. Sometimes they ask you to fill out IRS Form W-9, Request for Taxpayer Identification Number and Certification. If you don’t provide your number, the bank or brokerage is required by Federal tax law to withhold Federal income tax at a rate of 24%. Yes, you will get credit for this but when you file your return IRS won’t be able to identify you without that number and getting that credit may become difficult. My best advice is to give the bank or brokerage your Social Security number.
Keeping in mind that if you receive a large amount of interest and/or dividends, you will need to either make quarterly estimated tax payments or have more tax taken out of your paycheck. This will help you avoid the shock of owing a large amount of taxes when you file your tax return.